Notwithstanding the laws of a particular
jurisdiction, subrogation rights can be
modified by contract. The majority of jurisdictions that have addressed this issue
enforce express exclusions of the made-whole doctrine, and have determined
that an insurance policy can grant subrogation rights to an insurer, even where
the policyholder has not been completely
indemnified.

Thus, the parties can circumvent subrogation by the clear and unambiguous
terms of a contract. In most circumstances
the parties are free to negotiate the terms
of the policy; therefore, a majority of
courts will generally enforce a policy’s subrogation clause. [See, e.g., Fortis Benefits v.
Cantu, 234 S. W.3d 642, 649 (Tex. 2007).]
Policyholders and insurers alike
should be aware of the applicable policy
language. In order to repudiate the presumption that a policyholder is to be
made whole before an insurer’s subrogation rights arise, parties must use clear,
specific language in the insurance policy.

A critical issue that must be resolved iswhether the policyholder has in fact beenmade whole. When a case is resolved bysettlement, there are likely to be ques-tions as to whether the insured has beenfully compensated. For example, the issueof whether a policyholder can assert thatit has not been made whole until it hasbeen compensated for its attorney’s fees isoften disputed. Most jurisdictions followthe “common fund doctrine” — an equi-table principle which states that “[t]o al-low the others to obtain full benefit fromthe plaintiff’s efforts without contributingequally to the litigation expenses wouldbe to enrich the others unjustly at theplaintiff’s expense.” [Mills v. Electric Auto-Lite Co., 396 U.S. 375, 392 (1970).]The reasoning behind this principle isthat where an insurer that did not par-ticipate in the policyholder’s litigationagainst a responsible tortfeasor but ben-efitted from the results of that litigation,the insurer should share in the costs of

Most courts require theinsurer to pay a reasonableshare of fees and costs,often a percentage basedon the amounts recoveredby the insured and insurer...

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